I Bond Rates Decline to 4.3%, Higher Fixed Rate Brings Long-term Advantages

Despite a decrease in I Bond rates to 4.3% as a result of lower inflation, long-term savers have reason to be optimistic. The Treasury Department’s Bureau of Fiscal Service has recently disclosed that a higher fixed rate of 0.9% will apply to I Bonds purchased from May through October, 2023 a significant increase from the previous 0.4% rate.

This new fixed rate, applicable for the bond’s entire 30-year lifespan, will be combined with the inflation-adjusted rate, which is updated every six months. I Bonds issued between now and October 2023 will have an annualized inflation-adjusted rate of 3.38% in addition to the fixed rate. Interest will be applied monthly and compounded on a semiannual basis.

The increased fixed rate for new I Bonds provides a more enticing investment opportunity for long-term savers, offering a rate nearly 1% higher than inflation for three decades. This improvement might persuade more investors to consider I Bonds as a viable long-term option, even with the overall rate decrease to 4.3%.
Over their nearly 25-year existence, fixed rates on I Bonds have fluctuated considerably, highlighting the necessity for investors to examine the fixed rate relevant to their specific bonds.

The updated fixed rate is considered a favorable development for long-term I Bond investors, rendering them more competitive with one-year certificates of deposit offered by banks and credit unions. Nevertheless, for investors seeking short-term gains, annual rates between 4% and 5% might still be more attractive through one-year certificates of deposit or Treasury Bills.

Individuals are allowed to purchase up to $10,000 in I Bonds per calendar year, with a minimum investment of $25. Those receiving a tax refund when filing their returns can directly buy up to $5,000 in paper I Bonds each year.